Friday, November 28, 2008

At a time when "unprecedented" is being used to describe numerous economic events, an $800 Billion stimulus package was announced this week. The intent is clear enough: to encourage spending on new mortgages with interest rate reductions, and easing the terms by which Americans can incur more consumer debt. There is something curious to me about the premise. Interest rates were already quite attractive, hovering around 6% when historically the number to beat was 7%. In working with first-time buyers in particular, I see the dramatic differences between those who have been able to save money, and hence have had the 20% down payment required in this newly conservative lending environment, vs. those who have been unable to save.

Encouraging additional spending is clearly what economists feel is required at this juncture to reenergize an economy traumatized by huge swings in major indicators. We’ve grown eerily accustomed to the stock market being either up or down several hundred points each day, oil prices that were in "unprecedented" territory falling to half those amounts within a few months, foreclosures dominating sales in many areas and unemployment at levels not seen for decades. The intensity of the news and the volatility of major indicators are truly enough to have all of us on edge, uncertain, cautious.

I would love to assist buyers in purchasing homes in our wonderful East Bay area with its continued strength. So while I would normally welcome measures that would make it easier for buyers to enter our housing market, I can't help but feel that this latest measure, including $200 Billion set aside to make it easier for consumers to get further into debt with credit cards, is contrary to the best long-term interests of families as well as the over-all economy.

Some of those would-be buyers are convinced that our housing market will devalue further, and are unwilling to enter it until prices even in Berkeley, Rockridge and Albany are in bargain territory. It almost seems that some of these folks must be sure that the seller is experiencing pain before they are willing to buy. So far no precipitous drop in sales prices has occurred, and without that mythical crystal ball no one knows for sure if it will. My personal belief is that we may see a bit more softening, reflecting itself primarily in homes taking longer to sell. My guess is that we'll see much more optimism in our housing market after the inauguration. Bargain hunters might want to take advantage of these last months of a lame-duck administration and seasonal slowness mixed with the likely interest rate advantages from these latest stimulus attempts.

I'm currently in contract with buyers who wanted to establish a home together and were actively looking over the past few months. They know there is some risk that the value of their new home could go down soon after they purchase, but they are confident in the long-term stability of this area. They are looking forward to painting the walls something other than white, and planning a garage conversion to add space when they eventually have children. In this week of Thanksgiving I thank them for injecting some optimism in my daily experience. I thank them for being clear that buying a home is something quite different from buying stocks, and that while it is an important financial commitment, the emotional commitment is just as important, if not more.

So while this year has already brought us economic upheaval unseen since the Great Depression, even as we enter into the Not-so-great Recession we still have much for which to be thankful. We do see foreclosures in our area, but still in small numbers, especially as compared to some neighboring counties where the majority of properties are foreclosures or short sales. We live in an area of intense natural and architectural beauty. We are surrounded by an endless variety of delicious items. The life of the mind is active here. And let us not forget, even as the sun forces its way through the fog, it sets behind the Golden Gate, in this area that trully is paradise.

Thursday, November 20, 2008

Fannie Mae and Freddie Mac announced this afternoon that they are suspending all foreclosures on mortgages that the two companies own.

Both companies have ordered their national networks of mortgage servicers and foreclosure attorneys to halt all foreclosure sales and evictions involving occupied single-family properties. Freddie Mac is also including 2-4 unit occupancies as part of the suspension. The foreclosure moratoriums will take effect November 26 and go through January 9, 2009.

The suspensions will give servicers time to implement the Streamlined Modification Program announced by Fannie Mae, Freddie Mac, and their conservator, the Federal Housing Finance Agency (FHFA). The agencies' fast-track plan for getting seriously delinquent borrowers into more affordable mortgages was announced on November 11 in conjunction with the HOPE NOW Alliance and is scheduled to launch on December 15.

The temporary suspensions are also expected to give servicers more time to help troubled borrowers avoid foreclosure. Fannie Mae's attorneys and servicers plan to reach out to more than 10,000 borrowers the company estimates will be affected during the suspension period. Freddie Mac said its representatives will contact an estimated 6,000 borrowers.

“By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,” said Freddie Mac CEO David M. Moffett. “Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays.”

The chiefs of both organizations emphasized that lenders servicing mortgages they own will continue to work with distressed borrowers to consider all workout options available, such as permanent rate reductions and mortgage term extension modifications, “even if previous workout efforts have been unsuccessful,” Fannie Mae said in a written statement. This year, Freddie Mac said it expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on its wholly-owned mortgages. Sister financier, Fannie Mae, did not release its workout estimates.

“Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures,” said Herb Allison, Fannie Mae's CEO. “We must and will do more.”

Thanks to Gwen and Rhoda from Holmgren and Associates for this information:

Tuesday, October 21, 2008

Some fast facts that make smaller homes easier to purchase in today's precarious lending market:

The current conforming loan limit is set at $729,000, but expected to reset as of January 1st, 2009 down to $625,000. Traditional financing is available for conforming loans with only 10% down. Down payments as low as 5% will still be possible under $625,000 with the help of FHA. The last day to qualify for the $729,000 loan is December 1st, 2008. If you act now, a qualified FHA buyer with 5% down ($38,250) can buy a $765,000 home and receive a reasonable conforming loan rate. After December 1st, qualified buyers with a 5% down ($32,500) can only buy a $650,000 and still receive a reasonable conforming loan rate.

Jumbo loans up to $1,000,o0o currently require a minimum of 25% down payment. Loan amounts from $1-1.5 million will require a minimum of 30% down. This means a jump today from a conforming $729,00o home to a $730,000 loan will require 20% more in down payment.

Today's buyer with $38,250, looks to buy the $765,000 house under the conforming loan guidelines. Say the buyer can not find a home that suits him in the price range. December first comes and goes. Time for a visit to the lender in the hopes of increasing the price range to $835,000 to meet his needs. Under the new Jumbo requirements the buyer will need 25% down ($208,750) to qualify. This buyer's wish to increase his search parameters by $70,000 is going to require digging deep. He will have to come up with an additional $170,500 down payment in the new year to accomplish his new search. Add volatility of the interest rates and the monthly payment may also increase dramatically even if the loan amount has not increased due to the larger down payment. Enter Mom and Pop: See the NYT article, Mixing Money and Family.

Jumbo rates are more expensive when buyers do qualify for them. Creative financing used to bridge the gap with second mortgages. Today, second mortgages are available up to $350,000, but only at a total loan to value ratio of 70%. This means a minimum of 30% down. These are equity line second mortgages with current rates from 4.75-5.5%.

Many clients looking to purchase larger homes do have assets. Often they already own a home with existing equity. This equity had been tapped in the past during a home purchase, based on an assumed rental value of the property. Now, in order to qualify without carrying the debt of both residences; Borrowers must retain 30% equity in the current house. They must have a signed rental agreement as proof of the rental value. They must have rental deposit verification. And they must show six months of PITI in reserves required on the current residence. Given these new restrictions, we may see more sale of house contingencies in our future. More likely, home buyers may be forced into an already bloated rental market as they seek to liquidate the equity from one property (selling first) as they strive to purchase their next home in a still competitive market. Beyond the financial stresses this often adds the stress of a second move.

Thanks to Ted and Tom from MPR Financial for helping sort out the details.

Wednesday, September 17, 2008

Berkeley Hills Realty has adopted Solano-Peralta Park. In support of our local community, Berkeley Hills has voluntarily taken on the role as Peralta Park stewards. Our responsibility includes a weekly cleanup. We are at the park every Wednesday around noon, sweeping, pruning and watering. If you are in the neighborhood (Solano Avenue @ Peralta) and want to stop by, we would love to see you.

Because of recent cuts in the city's budget, the staff caring for our local parks have been stretched thin. As a result, the city was very supportive and thankful of our efforts and even donated tools and brooms. The city also put as in touch with some key individuals who have been very responsive to our questions and have provided us with guidance along the way.

If you would like to find out how you can volunteer to care for a park near you, contact your local Park and Recreation department:

Tuesday, September 9, 2008

The Jury is out on whether long term government involvement of these formerly private institutions will benefit our home buyers. So far the market has reacted possitively.

Our hope is that the resulting lower interest rates (at least in the short term) may make this an exceptionally good time to invest again in real estate. Could we be facing a unique market where the bottom (assuming we are near the bottom) could actually coexist with reasonable interest rates?

From AP:Investors, Industry Pleased With Govt. Takeover

Here is the California Association of Realtor's official (cautiously optimistic) stance:

In light of the U.S. Dept. of the Treasury's action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.

While the short-term impact of the Treasury's actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.

Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.

C.A.R. is concerned that the Treasury, and Fannie Mae's and Freddie Mac's new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.

The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California's and the nation's housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.

Wednesday, September 3, 2008

The East Bay real estate market remains strong, as evidenced by the recorded sales in Berkeley for the month of August. Note that the statistics for Map Area 8 are skewed by one anomoly. Most areas averaged less than thirty days on the market and many sold for more the the asking price. We captured Berkeley to give a snapshot indication of the market for the month of August. Oakland, Albany, El Cerrito and Kensington statistics are also available upon request.

Friday, August 15, 2008

Buying a home is a very personal decision and you need to feel confident that your best interests are at heart.Here is what you should expect of your Realtor:

1. Preview homes.You can communicate what you want from a logical standpoint, but your agent should also see homes with you to find out what appeals to you on a visceral level.Then, he/she should be willing to do some of the leg work for you by previewing homes on Broker’s tour.

2. Educate. Beyond looking at houses, spending some “face-to-face” time learning about the market and the process is important.Our market is very unique and there is often a bell curve with new buyers.Some savvy buyers get their offer accepted on the first home that interests them.Other buyers need to write a few offers to understand our market, particularly if there is competition in their chosen area and price range. A good agent can shorten this learning curve and help you feel ready for that first house.

3. Navigate new financing options. With more banks pulling out of the wholesale market, it often makes sense to look for loans in more places.Your Realtor can help navigate the waters.Appraisals have also become a bigger issue than they have been in the past.Now the pendulum has swung so far north that houses we know to have solid value fail to appraise.If there isn’t a good comparable within ¼ mile and within the last three months (as is often the case with our inventory) the appraiser may have a problem.Your Realtor needs to know what is happening in the lending market and what the potential pitfalls are.It may make sense in some instances to have the loan/appraisal contingency run for the entire length of the transaction.

4. Know the local jurisdiction. There is a pile of paperwork involved in buying a home.Some is standard for all of California.Some ordinances are specific to each city.For instance, Berkeley has a Residential Energy Conservation Ordinance (RECO), a sewer lateral ordinance, rent control and a seismic rebate program.You need an agent who is knowledgeable in the area want to purchase in to make sure none of this is overlooked.

5.Know the land.Are there issues/concerns that are specific to the home's topographical location?Is it in an area with known soils issues?Is it built over/near a culverted creek?

6. Know the housing stock.There are also potential issues specific to our older housing stock.Could there be a buried oil tank from an old heating system?Were the proper permits taken out and finalized for any improvements?Are there any hazardous materials present such as asbestos?Can the old foundation accept bolts for seismic retrofitting?

7. Negotiate the best price and terms.With good negotiating skills you can get a better price for the house.By knowing what to look for in inspections, a good agent can limit future surprises and mitigate the expense by negotiating for repairs during the transaction.

8. Manage a smooth transaction.When your offer is accepted your agent guides the transaction to closing and coordinates inspections, manages the escrow, and maintains the time-line.

9.After sale follow-up.Most good agents are available after escrow closes for advice and resources.

In short, it is a complicated process.You are best represented by a diligent, accessible, knowledgeable agent.This is the biggest purchase most people will make in their lives and you should search to find the best representation.A good agent can buy you peace of mind.

Friday, August 8, 2008

(08-03) 04:00 PDT Washington -- Anybody who's been sitting on the sidelines hesitant to jump into real estate until conditions settle down should know these dates: April 9, 2008, through June 30, 2009.

They mark the eligibility time to qualify for the home purchase tax credit created by the massive housing bill approved by Congress. If you have not owned a house during the past three years - or are considering buying your first home - and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).

In order to stimulate the national housing market, Congress is offering this incentive to encourage buyers to buy before the June 2009 deadline. It is money you will need to pay back. Still, time is money and since you can use it now and pay it back in the future without any interest or fees; there is real value to the credit.

At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay the principal back in increments over time, but there's no interest charge to you.

Rob Dietz, an economist for the National Association of Home Builders, says the new credit not only will pull first-time buyers into the market, but also have a powerful multiplier effect, as thousands of sellers of these credit-assisted houses go out and purchase replacement homes for themselves - extending the impact of the credit into the move-up segment.

How do you claim the credit? If you pass the eligibility tests and buy before June 30, you simply request the credit on your tax return for either 2008 or 2009, which will be modified for that purpose. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return.

Thursday, July 31, 2008

The East Bay real estate market remains strong, as evidenced by the recorded sales in Berkeley for the month of July. Many homes have still sold for more than the asking price. We captured Berkeley to give a snapshot indication of the market for the month of July. Oakland, Albany, El Cerrito and Kensington statistics are also available upon request.